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Ian Mullane: Stop predicting and start preparing - Blog.

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Ian Mullane: Stop predicting and start preparing

What is the data on coronavirus telling us? Nothing. This episode of the Escape Your Limits podcast will tell you why.

Ian Mullane, CEO of Keepme.ai, leads us on a comprehensive conversation around pandemic data, its reliability depending on how it's gathered, and the widespread misinformation that's a result of changing metrics around the world.

Through his years of insight identifying trends and quantifying risk, Ian tells us what the effect of the coronavirus on the fitness industry is going to be, and why we all need to be prepared.

The Escape Your Limits podcast is brought to you by Escape Fitness – a global community of gym design and gym equipment specialists that are looking beyond exercise alone to escape mental, physical and professional limits.

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Ian Mullane on the Escape Your Limits podcast.

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Who is Ian Mullane?

For two decades, Ian Mullane worked with some of the biggest names in fintech, such as Thomson Financial and SS&C Technologies. Leaving his career as COO for Sundgard's Asia Pacific business, Ian has since founded and grown a number of businesses, including Locowise.com and Vanda.fit.

A revenue acceleration platform for the fitness industry, Keepme.ai is all about smarter member retention using artificial intelligence and machine learning. The platform identifies members who are close to cancelling and win them back before they even plan to leave.

Through SaaS expertise, Ian and his team exist to help health and fitness businesses retain more members. Regardless of whether customers are big box or boutique, pay as you go or contractual, Keepme.ai equips them with the ability to accurately target and engage members, implement behavioural science approaches, and allows operators to truly understand the people they serve.

Ian Mullane episode highlights.

  • How the pandemic is proving to be a catalyst to many factors for change in the fitness industry, and how it will expose many businesses or consolidate other areas.
  • Why the numbers surrounding coronavirus are not reliable, and what effect the 24-hour news cycle has on our education surrounding COVID-19 and our confidence.
  • What the likelihood is of further lockdowns around the world, and what effect this is going to have on business.
  • What risk is likely as businesses open and communities increase contact, and what the fitness industry need to consider when social distancing measures are relaxed.
  • How there are some products in our industry will face challenges in hygiene when the pandemic passes, with new levels of standards being implemented post-coronavirus.
  • What rules and regulations the fitness industry is facing in areas of the world such as China that are now reopening following coronavirus closures, and how we can learn and predict how we need to act in the west.
  • Why your cash flow forecast has to be the most diligent document that you have as a business, and why it has to be more accurate than you've ever considered before.
  • Projections for the percentage many clubs and operators are going to lose in the way of members and cashflow, from a reasonable timeline and how it will affect your business after lockdown.
  • How much of an impact home workouts such as Peloton will have on the future of bricks and mortar fitness, as more people create habits of exercising at home.
  • What opportunities are going to present themselves in mergers and acquisitions following dynamic changes from coronavirus activity, and why some gyms and chains that get caught out will surprise us.
  • How huge companies such as Google, Apple and Netflix are going to bring to the fitness industry, and how they could make a massive difference with little effect on their own balance sheets.
  • Why this is the biggest opportunity that any business has to plan forward, once they are over any issues concerning cash flow.
  • How you can get a bigger share of voice with your marketing efforts now, as many businesses have cut down their ad spend and even slowed post activity due to resource and budget restrictions.
  • How machine learning and artificial intelligence can create models from the data around coronavirus activity to discover how members are likely to react around future black swan events.


For more insights from fitness industry thought leaders and entrepreneurs, check out the blog homepage.

Discover more about Escape Fitness.

Full episode transcript.

Ian Mullane 00:00
I'll get hammered for some of those projections. They'll be looked at horrific. Go kid yourself. I don't give a shit, right? I mean, if you want to go and pretend you're only gonna lose 5% because on your right, most of you been kidding yourselves for years you haven't been losing 30 40%. So it doesn't really bother me. But the reality is that you're going to see a large percentage you're not coming back.

Matthew Januszek 00:21
Welcome to this week's escape limits podcast. today. My guest is Mr. Ian McLean in spin in the FinTech industry for over 20 years. And he's also the founder and CEO of localize Vander fit and keep me AI In this episode, we talked about the health and fitness sector and not only about what to do whilst businesses are in lockdown, but but more importantly, what they can do and how they should approach when business starts again. So it was a it was a pretty interesting episode. We covered quite a lot of ground but I think for anybody This this involved in the bricks and mortar health and fitness industry then there's some really valuable information and insights and if nothing else, ideas that will probably inspire what to do as we start putting together some of our plans to reopen hopefully, in the in the coming weeks. I hope you enjoy this episode. And more importantly, we really hope that you're getting value from the content that we're putting out at the moment we've we've been focusing around how we can help a lot of our key customers during this this particular period. So any feedback you can give either through the escape fitness social media pages or with my page directly will help us ensure that we get the right information that can help you navigate through what's an extremely difficult situation. So please enjoy the episode. Thanks for listening. And thanks for joining us on the second podcast. And it's a bit funny because we recorded a fabulous podcast which talks about data and what was going to happen in the fitness industry with I and it was it was one of those really exciting podcasts that I wanted to get out. And literally within a few days of us recording it, we were hit slap on the nose with this whole Corona situation. And so our content shifted really to be able to provide stuff that was a little bit more relevant and, and so, for that for everybody that's listening, there is a part one, which we will be releasing at some point when we get out of this mess that we all seem to be in at the moment. But um, you know, I appreciate you reaching out to us because, you know, you'd, you'd sort of mentioned that you had some great insight and thoughts and ideas within your network about sort of, you know, what your view on the situation at the moment as it relates to the fitness industry. And then also, you know, what we need to think about in terms of when this is over and our conversation off camera was that, you know, certainly at the moment a lot of people are not really even thinking about it being over. So So thanks really for taking the time in to, to join with us on this sort of virtual podcast. And, you know, let's let's sort of dive straight into it if that's okay with you.

Ian Mullane 03:10
Yeah. Cool, Matt, looking forward to this.

Matthew Januszek 03:12
Fantastic. So. So in, you know, since we last spoke here, what's what's been your view of what's going on at the moment? You've got a number of different businesses from social media, and you're also very much invested in the fitness space, but what's your views on sort of, you know, the last three or four weeks and really,

I think that

Ian Mullane 03:35
this is their historic. Yeah, that's the primary thing. These are historic times. They're Black Swan events. They're any description that you want to give. And the The reality is that we're moving into a transition period as regards to the industry as well, meaning that in many ways, what has occurred over the last few weeks is proving a catalyst role. Lots of drivers that we already had within the industry. And we're seeing them accelerate the online digital growth, which is, you know, the more obvious one that's come through. I think there's some Darwinian pressures at play currently, where we are going to see a number of, shall we say, businesses, stroke concepts be exposed, and because of that have a high probability of default to non existence in the very near future. And, and I think we'll also see a great deal of consolidation in the industry. I think that there has been a necessity for it for quite a bit of time. And I think that this will generate a lot of change. So what's happening at the moment is is horrific on virtually every level and I do want to move myself away from the from the news coverage. In the day to day, you know, I'm a data guy by, by definition and, you know, by by everything that I operate in is not only very data related. However, there is so many fundamental flaws with the data presented, even in the most basic mathematical context, that I try to move myself away from any of the day to day. And I even asked myself a question at the start of the week. What is it that I believe will occur this week, that will be informed through the news channels that will allow me to make a different plan to put in place a different action this week that will be for the better outcome for me, the family and the business. And the reality is nothing. There is no news that will come out either this week or next week or the week after that is going to have a material impact on the way we operate. So emotionally or as a business. When it comes around to the reduction in our there should we say the decrease in the necessity for social distancing, when the lockdown ends, when there is a vaccine produced, whatever that penultimate news that comes out, maybe that will be shared. So what I'm not doing is getting myself tied down into the day to day detail, it's irrelevant, it has absolutely no bearing on the actions that I need to take in the business. And it's quite frankly, if you're anything, but human is nothing more than depressing, and certainly, you know, serves no purpose. So, and

Matthew Januszek 06:40
I don't just stay on that. And because you're right, you are a data, I call you a data geek, but that, you know, that's your business and your businesses and you, you know, you, you know, create your business from analyzing data and, and, you know, making decisions on it. So, if just just for a moment, you know, if you look at What's going on in the world and a lot of business leaders, kind of looking at the news and you know, there's there's so much data coming at you. And, you know, definitely seems to be, you know, some of its people say is legit. Some of it's questionable what, what's your view, as I suppose I'll call you a data specialist ready, but you know, what? What's your view? All the numbers that are that are coming out. And I know you've obviously sort of major point clear to say, look, you know, the data is irrelevant, but what what do you see is happening? Are people just trying to sort of take bits of data to create headlines and get attention is it that they're doing their best to glean data that hopefully people can make decisions on or what what do you think is going with that data because it's certainly driving a lot of emotion when when people see these stats, but it's also quite conflicting.

Ian Mullane 07:55
I think you're right is driving emotion is not actually driving action. I mean, it may well be taxing driving action as a federal or state or as an A country level over here in the UK. But from an individual perspective, if I was to go out and survey 100 people randomly now and ask them what the death thing was yesterday for their country, their thing, what the infection rate was, they'd have no clue. Because they are just become numbers. We are always at the mercy of the 24 hour a day news cycle. That is a challenge. It's a challenge for a news editor because they have to find a way to fill the available space. Now. The reality of these numbers is they've been published at the moment is that their inaccuracy comes from either their exclusion of some of the primary data. For instance, in the United Kingdom, the the death numbers on a daily basis do not incorporate nursing homes. Now, nursing homes are going to be one of the primary areas where we are going to see an increase in the death rate particularly when we have infection, but that could It is not being placed into the daily numbers. Now, does that fundamentally change things? Well, the fundamental issue with all of these aspects is that when we look at what degree of confidence Do we have, that the infection rate in any way represents reality? It has to be close to zero. Why? Because we're not involved in a comprehensive testing program. In the United Kingdom, we're barely getting to our first line of defense, never ever mind in the care homes, and then obviously, people on the streets. So that infection number is a number it is a number represented as a derivative of the amount of tests that have been done, then you've got that the famous case fatality rate, the number that we all want to logically focus on, because it gives us an opportunity to understand our own mortality within this particular context, adds that little bit more drama, but The reality again is, that number is a derivative of the amount of testing that's been done, and therefore can't be accurate until there's a comprehensive program of testing. Currently in around the world, we've got case fatality rates ranging from 18% to point 5%. In many cases, men in the United States are about 3.4. We're up around the 10% level. The reality is that in many cases, the case fatality rate is going to very much depend on the health infrastructure that's available in a country first and foremost. That's why in the Republic of Congo, we'd have a higher expectation to see the 18 and 20%, then we would see in Germany or the United Kingdom or the United States. So there's that aspect. But we also need to understand that the case fatality rate is only ever going to be understood when we have anything Tire understanding of the population it's infected with COVID-19. And we are in no danger of that. So if we happen to have 10 people die in a population of 100 tested, then that 10% can very quickly become point 01 percent. And I think it is difficult in the news cycle to report that death rates have probably been underreported, however, do not fear because the infection rate is probably much higher than we expected, and therefore the death rate is as a percentage. I think the other aspect is very harsh realities are that I am eight times more likely to be a victim of mortality due to COVID-19. If I'm between 70 and 90, than I am, if I am between 30 and 40. Those numbers make them comfortable reading because when that comes to Talking about the seriousness of this as an epidemic, it can make it sound like anything that belittles or makes it sound less important is because we're not valuing the seniors in our society at the same level as we're valuing the younger members of our society.

Matthew Januszek 12:18
Does that make sense? Yeah, yeah, absolutely. So, so for in your perspective, from a business, you know, business point, and I'm, you know, I'm not I'm with all these things is raising for for, you know, people can get quite sensitive in terms of what we're talking about. But I think in this conversation, you know, this is very, this is this is related to business, you know, certainly from my side, I'm not playing down the seriousness of the situation, but I think, you know, in terms of this conversation, it's purely business. So with based on the fact that the data, you know, it's very difficult to really rely on that data to give you any, as you said, in the beginning to give you anything that's that's that's hard facts to base your business on apart from the fact that, you know, this is a terrible situation how, how then do you know what do you think that the business community should then or I guess two things one, what are you seeing the business community doing? And what do you think, you know, is your view of what they should be doing?

Ian Mullane 13:22
I don't I can I concentrate more on the second than than the first meaning that what what should they be doing? And the reason being is because I think in many cases at the moment, we're still at a stage where some businesses have had to go through the very emotional situation of having to see in a large quantity of their staff leave, they've had to get to grips with the very harsh reality of their cash position. And in some cases, there is there is still a paralysis that has gone on, I am not seeing a consistent level of activity or productivity across across all of my customers and the industry participants I speak to, what I would suggest is that any operator that is in this environment at the moment, needs to stop relying on prediction and just concentrate primarily on preparation. We have to face a reality that the current lockdown measures that businesses find themselves around the world are not going to be the only lockdowns that occur in 2020. There is a very strong probability that between now and September there will be at least one and maybe two further lockdowns. Now, in a country like the United States that could be quite state driven. And somewhere like the United Kingdom or Germany, that could be on a country wide basis. I think the probability that that's going to occur Maybe twice, maybe three times in 2020, prior to both the efficiencies of handling the virus, widespread testing. And also obviously a vaccine being available means that any of us that are currently basing our business forecasts on any view that we are not going to go through this at least once or twice again in 2020. is making a foolish mistake.

Matthew Januszek 15:27
So where do you you say that that's that could happen, then what is that just a personal view on what what you're seeing happening and you're failing or is there any, you know, is there any more to it than that?

Ian Mullane 15:38
there? It's it is, if we take a look at how this has occurred, we have got a very good understanding that there is a high probability that is, you know, that from my background, being in economics, an awful lot of the decision making that needs to be made. post this phase one is going to be more driven by an economic necessity of countries and states, there's a necessity to get the workforce back to be an operational and productive, that's going to require trade offs. There is going to be a necessity for them to understand what possible GDP output they could expect in q3 by having the workforce at least 80% operational. And the trade off to that is going to be not just a lightly but a near definite. And we definite bringing back of the virus in a more widespread community, because there's no physiological reason why that would change. Currently, there's no vaccine out there. There's no reason to believe that temperature and climate is having a widespread effect. So with that being the case, we will have an expectation that when they do reopen, schools, reopened, businesses reopen f&b and go wherever we open the gyms, we will have that The ability during that time to have more contact, but that contact is going to come with risk. And with that risk, we have to expect that the government's are likely when they see it occurring again, to bring down the lockdown, even if it is for a shorter period. I on the gym side, in many of the comments I'm making there, I think the fitness business has a very different problem to consider. And that is that even when the social distancing and everything else is relaxed, I firmly believe that the fitness industry is going to find itself held to a different level of standards, bar many and in this case, you know, even FMB restaurants and pubs. I still think that the regulations and the precautions that will be given to the fitness industry will be in excess and because That, that is going to restrict the operators ability to get back up to where they were, or to catch up from where they're coming from, because they are going to have restrictions and those restrictions are going to be around social distancing within maybe the inability to utilize certain services. And I think we would all be aware that there are certain programs and indeed products in our industry products as in businesses that have particular type of workout programs, which would be difficult to provide the level of hygiene necessary on a per member basis per session, that would allow them in turn to have the confidence that they weren't going to become an organization that had the potential to be spreading when it came in, rather than say, another business for instance, swimming pools, etc, where maybe their prevalence or the challenge is not as great

Matthew Januszek 19:01
And do you think then that have you considered what that could look like? I know, you know, I've certainly spoke to people where they're thinking that it could be limited numbers within facilities and, and periods where they close down and reclaim before they let people in. So there's a, there's a, there's a controlling, you know, a certain amount of control in terms of numbers and distancing and cleanliness. Have you seen or heard anything that you think is likely to, to, I guess, to affect gyms and I know, there's different types of models from boutiques where people are pretty much squashed in 40 people in a room to more of a traditional model where there is a lot more, you know, space around people.

Ian Mullane 19:45
I think the challenges, if you think are the two areas which are obviously going to be in the group x environments within the studios, and I attended a webinar, an Ursa webinar, maybe two or three weeks ago, your time Time is just bled. But it was a webinar that was held by us. And it had Colin the CEO of pure over in Asia, he was able to take us through their, you know, what they are going through since they've come out of lockdown in China. And you know the type of rules and regulations which they're having to go through. And you know, the rules and regulations which they are having to go through our inclusion, obviously, of having to take temperatures on the way and that's one of them as an obvious one, they're only allowed to have a certain quantity of people, they need to be able to show the physical spacing during those particular periods. And it is that type of aspect. And another one which I think is is important is if I'm coming in to do if I'm going to go and do a berries, for instance, in the berries environment, I've got a much higher probability of being able to utilize a set amount of equipments within my particular physical space. And therefore because of that, the ability for the operator to then come and clean Afterwards is higher than if I was to go to an environment where I was in a circuit orientation, and I am sharing that equipment with multiples, I think that there is probably going to be guidance given relative to whether that would be something that they would, that countries on a case by case basis would be comfortable with, because the probability would be a lot higher that there is going to be challenges there. Should individuals over a prolonged period be sharing sets of equipment on a regular basis day in and day out hour by hour.

Matthew Januszek 21:34
That's an interesting one. I hadn't thought about that. But you know, make sense, I suppose if you are, you know, where people move around from strength machines to cardio is in that circuit type of environment where you are, you know, kind of spreading stuff around as opposed to having these individual stations where you come in your workout for 30 or 40 minutes and then you leave and then you clean I suppose is Certainly, it seems I may be wrong, but it seems to be kind of more more controllable. Which is an interesting one.

It is I mean, they're,

Ian Mullane 22:11
you know, we're still at relatively early stages, we're still learning about transmission, that seems to be something which is, you know, developed over the last six to seven days where there's a much better understanding of the the range that an individual can actually be affecting. But, you know, I think that all of those factors are regulatory, or potentially regulatory. I think what we need to understand is that consumers will have their own standards, we would be naive to believe that consumers will not have reluctance to place themselves in those environments when this lockdown ends. And it is to the operators responsibility to help with that particular task. And the way that they're going to be able to do that. Quite frankly, is by making sure that their cleaning crews and their processes around that are front and center. It's never been a more important aspect. It's never been more of an important time than rather than giving your class schedules and helping them to understand the variety that is available that front and center your health is the most important thing that I have responsibility for. And part of that is I would like to share with you very clearly what we as an organization do day in day out hour after hour, minute after minute so that we can make sure this is the safest environment for you to come and participate in. However, should something happen relative to a an infection reported like to tell you what the process is that we go through that we will immediately go into a lockdown for a period of 24 hours that we will have a clean include that we'll come in and do a deep clean on the facility. These are the type of things which are necessary. There are many of us in society who will feel comfortable with the rest of this virus presents us. But there will be many and probably the majority that will not, not because of how they feel about their own mortality, but I was what effect them catching it could present to the risks in their extended family. That is going to be one of the major challenges about getting foot traffic back into fitness institutions. It's going to be around people's perception of how they could produce an increased risk for them, in addition to the relaxation of the social distancing rules,

Matthew Januszek 24:48
I think I think that's the that's an interesting one. And I certainly talked to a lot of, you know, friends and younger people where they're, they're almost slightly you know, let me Chuck me in a room of people. Let me get it out the way and Deal with it kind of attitude. But but the then on the other side, I think which is becoming more apparent is, oh shit, you know, I've got parents and grandparents and that sort of thing. You know, it's not about me, it's about the other people. And I think you're right. I think that's that's the sort of, you know, that's the funny this funny thing but that's, that's the unusual thing about it is, you know, you've got to now start to think of all the other people that you know that you're likely to kind of impact if you know or you don't know about it, which which I think is what's, you know, what's what's going to kind of, you know, put put a very different spin on on how people go back afterwards.

Ian Mullane 25:40
Yeah, people are going to people are going to have a they're going to be risk adverse, maybe not for themselves, but for the impact of others. And it you know, this is a it's a it's a challenging one because when we come out to social distancing, the people that we will probably spend an increased period of time with will be the members of our family. That may be more vulnerable on the basis that we haven't seen our parents for a long time, we haven't seen aunties and uncles. And it is that increased exposure to those individuals, along with the increased risk that we may place on ourselves, which could end up being one of the primary drivers. So as a as an organization, it is imperative that I am even now communicating out to the members and the prospective members of my business, what plans we have in place that can come in the form at the moment, we've got plenty of COVID-19 guidance all over websites, we all seem to use the same uniform banner at the top. But what that most talks about is membership suspensions, or what to do if you've got a membership inquiry or the lockdown we need and if we haven't, we need to be preparing for the next stage. The next stage will not come dramatically increased. Quickly, but it is going to come relatively suddenly. And every organization needs to have in place, the type of operational procedures and communication now, so that they've got the capacity to press the button at the right time, so that they can bring us into play. One of the other challenges is with many of the staff within these organizations being let go, communications currently breaking down, there's not the ability to be able to telephone ex who's currently home working before they come back, to be able to explain to them the process the procedure or just to understand what they believe that best practice could be in this particular area.

Matthew Januszek 27:46
I think, you know, coming back to your your earlier point, I think that, that sort of uncertainty in terms of what it means and the lack of good data, as we talked about at the beginning. It is difficult because you've almost got to assume the worst that this is super contagious and you know, you've you can't really be around people a lot particularly at people at risk. So, you know, putting a plan together in, in the sort of fitness industry where you have got to be distant is, is a very tough one and I suppose, I suppose, you know, the sooner the the data and the information that the governments get about what, you know, how this really affects you, and it seems to change on a regular basis, you know, you know, this seems to be coming in from all different areas, you know, and it's it's like where does it start? I guess, you know, building a building a plan on uncertainties, not not an easy one. So with that said, then you know, and we're obviously talking about you know, what comes you know, what, what comes after lockdown what, what are some of the things that you think, are important in terms of this ramp up because, as you said, most businesses now have fellow their staff, I guess, you know, the first thing they've got to do is get get people back into the business. So have you? Have you sort of thought through any of that? And is there any things off the top of your mind that are interesting to share in terms of that sort of ramp up period?

Ian Mullane 29:15
Well, I think the fitness industry has a very large quantity of self employed, operators, you know, particularly in the PT environment. So then, in the UK, if I was to, I won't understand I don't understand any of the the federal packages which are put in place in United States, so I won't try to quote for them but when it comes to the UK, the large majority of staff have been furloughed, and therefore therefore, you know, they are effectively resting they are ready for redeployment when it comes around. I don't think this is going to be a employment challenge. I think reestablishing operations is going to be relatively simple. And my my one concern, let's just take it back and you would like to To believe that the shock to the system in the time being used Currently, the organization's have got a good understanding of what can kill them over the next nine months. And the only real thing that's going to kill them over the next nine months is the same thing that kills any business, you run out of cash. And the the and, you know, there will be some that have already ran out of cash and that that sad, and there's probably some very good, at least early stage ones which will not continue through. However, all organizations now the most diligent document they should have. It's got to be a cash flow forecast. That cash flow forecast has to be to a degree of accuracy that they would not have possibly contemplated ever utilizing before because they didn't need to worry about a margin of error of four or 567 or 8%. The difference now that an organization needs to know where absolutely every penny and dollar is going on the revenue side, sorry, on the cost side. But what they also need to do is they need to plan for a variety of revenue situations going forward. It would be foolish to say we're back in operation by June 80%. Were up to 100% by September, and that's it's good for the year. We have to take into account very, very clearly that there has been a significant shift within our existing revenue base. Because even in this last four weeks, people who had the capacity to no longer continue with us are not likely to come back to our premises. We can increase that revenue reality with those that are now worried about attending on the basis that There are significant challenges whatever around hygiene or whatever else they perceive those ones to be. In addition to that, some people are going through a change in economic and financial circumstances that may well benefit some significant parts of our industry. I do personal opinion, I believe that the budget clubs will probably recover a great deal faster than the higher end clubs because the amount of discretionary spend utilized there is significantly less. So an organization needs to look at its revenue, and it needs to kind of throw out the model that it had previously. And it needs to do a look at some what if scenarios What if only what if only, so, a very simple type of model here doesn't require a high is no machine learning aspect of it is that if we take a look at the membership and the revenue that we were receiving, when We went into lockdown. And if we were to then detract or subtract from that every member that has the option to not continue with us in the next three to four to six weeks on the basis that their contract is no longer valid, or is is just moving on. And then in addition to that, we take a look at those that are likely in the next four weeks after that, we're going to get a much accurate understanding of what our overall membership is. If that is on a per month basis, or an annual contracts or whatever, then we've got a luxury that many providers won't have. But to then suggest that let's say we are fortunate enough to come away with an average club losing between five and 8% on a monthly basis. Most of them will tell you it's two and 3%. Trust me it's not five and 8%. a monthly basis there'll be a number of them that will be higher than that realistically when we Come in in June, which would be a relatively optimistic date for an operations recommence in the fitness industry, I would suggest. I would guess that between 30 and 40% of membership are no longer contractually obliged, or engaged with the club anymore. Yeah, I'll get hammered for some of those projections. They'll be looked at horrific. Go kid yourself. I don't give a shit, right? I mean, if you want to go on pretend you're only gonna lose 5% Good on you, right? Most of you been kidding yourselves. For years you haven't been losing 30 40%. So doesn't really bother me. But the reality is that you're going to see a large percentage you're not coming back. And if you're got cash flow forecasts, which are based around any of those optimistic outlooks, then you're going to hit a cash flow Hill later on, which is going to be damaging, particularly when you start to take into account the fact that you're likely to go into another lockdown and then you You all take into account? What do we believe the sales environment is going to look like? I had someone say the other day that we're probably entering into the largest pre sales in history, or we're not. And you can look at that either way. That is to suggest that all of these people that are coming out of contract and are no longer engaged or committed to an organization are going to be going back looking for a new provider. In many cases, if the existing providers doing a good job, they've got a high probability that they'll be able to get them back anyway. Yeah, apologize. By the way, you can probably see visually at the moment, I am being dazzled by a British sunset. It's a rarity. I'll be back here, but if you wondering how my my video has gone, so contrast that it is due to the fact that to my left hand side, I have an absolutely spectacular Red Sky developing at the current time.

Matthew Januszek 36:00
A beautiful beautiful moment they're in the middle of the interview in So, so coming back to that and I think that's an interesting point because I, you're right you can look at it on both sides I suppose they certainly from what we've seen we predominantly deal in the b2b Club market but we also are involved in the consumer and the consumer side is gone crazy in it and it continues a lot of my friends also have fitness businesses that just focus on that side and it's got to a stage where pretty much everybody that's selling products have totally wiped out of stock and now they're all trying to get get products in So there seems there's there's definitely a demand on fitness and I'll come back to the sort of social media side in a in a moment but I guess it's it's, you know, with that with with people probably appreciating the importance of health and fitness more than ever, and they realize that, you know, they need to keep in shape, even if it's just To fight off things like like Corona, do you think that that you know that I guess the needs probably not going to go away but do you think instead of spending sort of 30 or 40 a month on a health club membership, they may think well actually, I've, you know, it's more convenient to work at home I've either got my peloton or my my fitness app or whatever and, and people's behaviors could also change in terms of where they get their fitness fix from What's your thoughts on that?

And I

Ian Mullane 37:36
I have multiple thoughts on it. I am. I'm not pessimistic for the bricks and mortar business. I do firmly believe in the power of the community. I do firmly believe in the power of the experience. And I do not think that digital is going to be a replacement for bricks and mortar. So there I said it right. And I'm a peloton user. Right? So you know that that is That that is a reality. Right. And what I do think is that organizations, I think that what is going to stop the industry getting back is going to be more around the health concerns. I don't think it's because they've been watching, you know, the digital comparison out there at the moment and feeling that that is sufficient for them. And I think that there are larger elements of the industry, which are important and are drivers to people's continued involvement in them. And I don't think that the digital offering is going to take away from that. Do I think it will impact Yes, definitely. I mean, that you know, particularly when you've got products like the peloton, and Sonos, etc, then there's going to be elements of that. But in many ways, I think the digital offerings, particularly on the online workouts, I think that they will become very much complimentary and I'm not Suggest employees that every single gym starts to do a digital offering. I can just imagine the amount of crappy content that's already out there. And I can imagine it's going to get 50 times better. You know, ladies gentlemen, there's a reason why peloton call themselves a media production company. Right? They're not a fitness company. And the reality is that it's hard work to produce consistent high quality content like that. But do I think that we will see an increased importance around fitness? Yes, do I think that people will have increased habit around working out at home? Yes. But I also think that could drive a lot of people back into and people who who are not in the gyms previously into the gym, because people will have re establish the habit that they want to progress. And they can do that through the use of a PT by use for more sophisticated equipment, or just by going to group x classes. So I think Know what's happening at the present time is likely to balance out in many respects. And you could argue currently that a lot of the purchases that are being made are discretionary spend, supported by the fact that people are not having to go and pay per class type packages currently with other organizations because they can't.

Matthew Januszek 40:21
Yeah, interesting, I think some some good, good points there on both sides of the argument and, you know, potentially some opportunities there. One of the things that came into my mind we spoke before we started about, you know, the m&a market and I wanted to sort of touch on two sides of that, you know, probably one what you you know, what you what you see sort of happening in that world and then to as it relates to the current thing that we're talking about, you know, in terms of these sort of in, in club bricks and mortar and out of clubs, digital, you know, do you do you see there being opportunities for business Is to, you know, that maybe traditional bricks and mortar to to be, you know, looking at acquiring, you know, companies where they can sort of you know, bring those two sides together in a in a very high quality way. So you've got, you know, dedicated production companies offering digital stuff and a bricks and mortar and you know, bringing those together, you kind of, you know, you're in an interesting space. So there's kind of two questions in there. But, you know, maybe start with, you know, what, what you're seeing in that space and, you know, what kind of signals is, you know, worth sharing?

Ian Mullane 41:35
Okay, well, on the m&a side, I think we're going to see we're going to see a lot of activity. I we touched on beforehand. You know, I'm aware that there are two investment banks currently that are operating specifically to be looking for distressed assets over the next six months in the industry. And there's every expectation that that there will be a number of them. I think we're already seeing an Number of high profile ones currently which is struggling. And you know that you know that you certainly have certain ones like they're the likes back up to 180 million on the balance sheet. They're not going anywhere anytime soon. But there will be organizations which just don't I think that there will be, we started to see the box within a box type situation or the boutique within the the big box. And, and I'm sure many of the bigger boxes looked at some of the boutique offerings beforehand and thought, wow, if only we'd been there first, or it's a really tight concept. That's great. And maybe they've even you know, started engaging conversations. But you know, any entrepreneur that was starting out on that particular journey at that stage would have said No, thank you. We got big plans. We're just about to go out there and see if we can get some investors we got plans to go five to 10 to 20, etc, etc. And that's over. That's not happening anymore. Not happening anytime soon. And the particularly in the boutique mark. Place where you've got the per class pay as you go type model you are operating have significantly lower margins or cash at hand. So the probability is that we're going to see a lot of casualties in that area. And the ones that were developing strong, the ones that had strong concepts, the ones that looked like they were likely to grow legs, and we could well see them being acquired by some of the larger big box assets and the mid market that was whimpering to dying in many respects under pressure from both that the big box in the boutique, they may look to consolidate their offerings by getting involved in a number of areas in there. And I certainly would not write off seeing a one of the major European budgets operators moving in and making an acquisition of another major your pn operator, maybe off, you know, maybe they're 2530 40% size of the actual acquirer on the basis that some who've got some good cash on the balance sheet, good relationships with their bankers, and others not so much. And you know, anytime something like this happens when the tide goes out, we generally get to see those that are not wearing their bathing costumes. And there are going to be quite a few and some which are going to quite frankly, surprise people. And with that being the case, between the investment bankers that will still see value, particularly if they can reorganize the cost infrastructure that would come from, you know, a voluntary liquidation and type of arrangement, then your reality is that we'll see some further consolidation and one of the largest

Matthew Januszek 44:52
just on that for a second you know, D in terms of strategic and I'm just throwing ideas around here, but I suppose if you are A smaller business. And you know, you've you're in that position, like you said, where you know, you're struggling for cash you but you've got a you've got a strong model, you know, are these interesting? You know, whilst we're in this position are these interesting things to be thinking about where it's like, Okay, well, I've got a strong boutique concept, you know, there's a mid market club there and have it, you know, sort of instigating those conversations for people that are trying to, you know, refinance a deal and almost, you know, kind of be putting some of these deals together, because it's, you know, it sounds like with, with what's going on there, you know, there are opportunities to probably, you know, put a group of small, emerging businesses together and to create something that could come out of it in a very strong position was you think about that?

Ian Mullane 45:47
Well, I think if I was a mid market operator currently, and I was moving into a struggling financial territory, where I was unsure of whether I would have the operational strength to See through many more of these events over the next six to nine months, then going to my bankers or my investors and suggesting that they provided me more cash to try and help me see through this is a very different proposition than actually going and taking a look at maybe where some of the weaknesses were in the business of bringing together some of the parties. I mean, you and I will both know of some very strong boutique concepts, which do have the potential, but they're either at the early stage, or they haven't yet had the opportunity to get some decent capital behind them. But the challenge in the marketplace being your capital has been free for a number of years now. Right? It is to all intensive purposes. And it is resulted in some phenomenally bad decisions relative to expansion and growth in the building of the sites. So that's where the Darwinian aspect comes into it. It's not a bad thing to see a reduction in operators ticularly inefficient operators, that's just business right. And I don't think that's a bad thing. It doesn't mean that there will be casualties at the member level, it will mean that the stronger businesses, the businesses that are offering the value, the businesses that we want to represent industry will have a bigger opportunity to grow themselves. And that's particularly important in bricks and mortar. Because in the bricks and mortar businesses, they are going to have to evolve not just because of what has happened, but because we've got organizations out there currently, that have got so much money on their balance sheets, I mean, we only have to look at Apple and Netflix and these guys, if they want to enter into our marketplace, if they want to bring together a you know, a comprehensive digital offering with media production and the bricks and mortar, just like Amazon with Whole Foods, they can do so and they can do so without it even being a touch on The balance sheet. And that if you don't, you could be the lucky one that you get the telephone call. And Tim Cook says, You're the one we're buying you tomorrow and you guys are going to become on your fitness offering. That's fantastic. But when you're not, you're then competing with Apple, right? You're then competing with Google, you're then competing with Netflix, you're competing with distribution companies that know how to produce who've got cash on the balance sheet. And I've got phenomenally strong teams when it comes to content creation. So they're looking for distribution. And that's the bricks and mortar aspect of it. So yeah, I'm, I'm excited as a spectator to understand what the likes of Apple Lululemon. And all of these type of players that are around the marketplace, have vested interests in seeing it be successful, whether it be Apple through the watch or whether it be little lemon through its apparel, that they want to move into being more integrated within the industry. And to do that that's likely to come through acquisition. It's not like you come from from any of the old tired brands as such, they're more likely to go and move into something. I mean, a logical one. No, call me Madden, and I'm just throwing it out there. Orange theory with Apple. There's an awful lot of synergy in certain aspects of it. There. There's been the tie in from day one. And that's aspect, not suggesting I've got any any knowledge of that to be the case. But when you when you look at, for instance, orange theories, broad base and I know obviously the franchise model adds a massive complication to that overall. But again, if I are holding a franchise for our exterior and I suddenly find out that the master franchise holder is Apple, am I pissed off? Probably not right. I can probably see the benefits in that. But I do think that we're going to see more players and I could name another four or 500 will be another one as well. Nice and obvious one at some stage as is added us will start to get involved, because they need to have more influence over the way their brand is marketed. And the influence and marketing aspect of it, which has been very, very successful in many cases. Take Jim shark as a prime example again, when you and I met. And yeah, it seems like forever, which is only a couple of weeks ago, the following day, Jim shark opens for the first time ever, you'll be aware because you interviewed mark the day before their first pop up store in Covent Garden. And they had downstairs right Jim box, right. And you know that that actual tile was a very logical one. And we're going to see more apparel, just like we've seen with the wearables, we're going to want to see them take the wearables, plus the apparel and then move that even into an online digital offering, but then probably supplemented, because there's revenue behind it and it's good supporting into the bricks and mortar aspect of it. That's why I think that when you look at our industry now, we won't recognize it in 24 months, by the end of the year, we'll be thinking How the hell did that happen in many cases, and we'll be surprised the consolidation will be surprised that who didn't survive will despite that we'd be surprised at who is doing really, really well. But then you move that forward 12 months further, it's gonna look completely different again, we're now on a very fast road to change. And organizations that adapt and organizations that understand that are going to benefit very significantly. Organizations that don't Yeah, but like,

Matthew Januszek 51:37
hmm, we kind of covered this a little bit in our previous interview, but do you think that what's happened now at the moment with with the current situation, do you think that's just really accelerated things that that we've all been talking about for a long time, like there's nothing in this conversation really, that's, that's new and there's not out there. It's just the speed that it's probably now going to consolidate and You know, change into something else that we'd all probably put on the back burner up until up until now.

Ian Mullane 52:07
Yeah, completely like, this is a beforehand, you could ignore certain signals that you could see in the industry, because you could kick that can down the road and either hope something was going to happen. Or maybe it's going to be two, three years away, right? That was primary. That was the primary attitude on those. As an industry, we're still getting excited about being able to offer a mobile app about 12 months ago. So yeah, let's not suggest that we are at the forefront of technology, in most aspects, even operationally, there's a great deal of improvements that could be done in when you look at comparison with other industries. However, I think that what we've now got in place is when when the pause button went on, what I hope happened was that leadership's in many organizations, were given a different viewpoints or at least an opportunity To give more consideration to their business, I know I did. I know the first time when this was announced, when I realized that there was no longer going to be anybody to speak to on the end of the telephone for a period of time. It was It is an utterly unique situation for any business, to be able to sit down now and fully plot out what they believe the impact could be the scenarios that could happen. we'd all like to think we do it on a day to day basis, but it's too challenging. There's too much going on. We're running our business, we're running our lives, and we're running at 100 miles an hour. Currently, that's not the case for the vast majority. And therefore the opportunity to start looking into what things could look like, what the possibility to do this is what would be the impact if that happened. Do we have the capability to go and put a digital offering on is our brand strong enough for us to start charging for a commercial Digital offering, right? Should we be looking at consolidating with another brand? What brands do we think are going to struggle that we could go out and possibly acquire? Right? All of these questions are strategic questions that may may get asked at a board meeting on a quarterly basis for an hour. And from an off site review on maybe a day on an annual basis, and the depth they'll go into is no more than confirm that the question probably should be answered. But they'll kick the can down the road for another year. Not now. We're into four weeks now we've got a we're gonna have as extended tomorrow presumptions probably after the half term, may the next May the eighth along those lines, that still gives every business leader in this industry from the geography I'm speaking from at the moment, the biggest, largest proportion of time, they will get in their careers to deliver rate, what direction their business could be in any of them in 12 months time sit there and say, Well, that was a bit of a surprise, I'm gonna guess are the ones that are not going to be in business for too much longer because this is an opportunity. It's just depends on whether you want to take it because realistically, it's hard at the moment we get it, everybody does. It's hard for everybody, but there is a necessity to plan forwards. And if they don't plan forward, they won't get this opportunity again.

Matthew Januszek 55:29
Yeah, I very much agree with you on that, you know, there's taken away the, you know, a lot of the terrible stuff that that's come along with it, you know, just trying to look at the silver lining, I totally agree with you, you know, being able to step away from the business and, and think and get, you know, have have your team thinking about these ideas. You know, we've we've spoke for a short while today and there's a number of different scenarios that have popped into my mind that I hadn't thought about and you know, there there is some, you know, certainly one of the things You can't take away from is that people's health, I believe anyway, people's health is going to become more an important part of their lives than ever had been. So even the people that weren't into health and fitness are probably realizing that they need to be a little bit healthier and fitter and, and so I think the circle certainly increased in terms of that is really a case of, you know, how you create relationships and provide services in this, you know, in this new world of which I think is a, you know, is a bigger opportunity for everybody. Coming, I wanted to sort of, you know, move over to social media now, you've I believe you've got a social media business, is that right? And still you got it?

Ian Mullane 56:41
No, no, no. Okay. I localize yet I've had localized.

Matthew Januszek 56:48
I'll let it that

Ian Mullane 56:51
990 1980 to 1982. Now, you got my mind in 2012. Right. So I've had that for quite a long time and basically localizers platform predominantly used by big agencies, but also used by many of the brands as well. But effectively it's utilized to understand which social media content is resonating, what's the performance, etc. So, yes, I've had that for quite a bit. It's used by an awful lot of the fitness brands as well.

Matthew Januszek 57:19
Yeah, so so what what are some of the things that you're seeing as it specifically relates to the fitness community? You know, I certainly have seen there's a lot of, I guess, Fitness Trainers, pumping out workouts and exercises and that type of thing, but what are you seeing from the big fitness brands in social media, no other are they grasping it and pumping out a lot of material or are they gone underground? What what are some of the key trends that you've picked up on that on that point?

I did.

Ian Mullane 57:54
Yeah, I was having a conversation with my PR firm door. Want to action PR and Dawn and I was saying that, you know, it was imperative that communication was logically going to be one of the major pillars for member communication going forward. It always is. So, and in particular in this period, right, you've got to keep them you've got to keep people engaged. Now, for every one that's putting online zoom classes, or maybe moving it to another level of professionalism, there's still a necessity for communication on a day to day basis. So what I did was I just did their research and we took a look at the posts frequency of the of their, I won't say their, let's just say 25 of the largest operators in the world. And what we found was very simply that their frequency has gone through the floor, and they are actually communicating significantly less in April than they did in March. And in March, they were doing it significantly less than they were doing it in February. So I, you know, the utilization by certain brands has increased quite considerably. There's a number of UK brands that really surprised me that they had done 400% increase in their social media activity, which is a challenge, by the way, because you're trying to keep quality trying to keep good voice, those type of things are a big challenge. But there was also a significant majority of them in the overall group that had stopped being accurate active altogether. Or were putting out basic public information notices or using Carver and throwing a motivation quote on they're well below their usual standard. Did you know that I suppose that's understandable. Maybe maybe the marketing team no longer exists? Maybe they're gone right. Maybe they're that that that is that the aspect of it? And but can I just go back to that cash flow forecast, if you've been ignoring your members for the previous four weeks Do not expect them to be knocking on your door looking to read, you're not right there, because you may have been. But there are others that are not. It's not just Joe wicks during his on his daily basis and his classes that were, you know, that have taken the UK by storm. There are many, many operators that are doing incredibly good jobs, even in a amateurish but enthusiastic way to be able to engage their membership. And what this has done in many ways is developed a bunker mentality around the members and the brands that were in this together. And we're going to come out of this together, then maybe in those that are already quite strong towards the brand and increase strength and there may be some on the periphery that feels stronger Association, because they got to see the less polished version of the product, but they got to see something which is very genuine, which is what social support post to be about, if all you did was to serve a post to say that all memberships are suspended, keep safe, and we hope to see you soon. Good luck trying to get people back because the beauty social is that people are sharing their experiences. And they're sharing them in this sense as well as everything else. And the utilization of hashtags. And the utilization of different channels has meant that some brands are increasing their audience. In March across a number of brands, I saw between 10 and 15% audience increases with zero paid activity, meaning that many of them had decreased for obvious reasons. The Facebook ads and Instagram ads they were running to do their sales generation, but they were getting an increase in organic likes or follows. The only thing that I can put that down to is an increased quantity. have content of sufficient quality or of interest that has brought new people to the brands. And those individuals, those brands have got a capacity to then convert that into paying customers in whatever form they choose to, at a much higher rate than those that are not doing anything at the moment.

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